In marketing, psychic distance is the perception of self and other operating across international markets. It is important for businesses expanding into foreign markets, and originated in the study of aesthetics early in the 20th century.[citation needed]

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Psychic distance is made up of the Greek word "psychikos - ψυχικός", an adjective referring to an individual's mind and soul,[1] and "distance" which is based on perceived cultural differences between a home country and a "foreign" country regardless of physical time and space factors which differs across diverse cultures[2].

The concept exists, therefore, in the mind's eye of the individual and it is their subjective perception that uniquely determines "psychic distance".[3] By its very nature psychic distance is a humanistic reflection of individual acuity and not a collective, organisational or societal perspective.

In his book, King refers to his preference to use the term "aesthetic distance" rather than psychic distance, as he feels the latter term has misleading connotations in current usage.[4]

In 1912 Cambridge'sEdward Bullough wrote of it in a long paper entitled, Psychical Distance as a factor in Art and an Aesthetic Principle which appeared in the British Journal of Psychology.[5] In this he set down in a reasonably complete manner the concept as it applied to the arts.

Evidently, he successfully influenced thinkers 50 years later. Donald Sherburne, for example, says, "Edward Bullough's psychical distance has become "a classic doctrine of aesthetic thinking." [6] And James L. Jarrett writes of Bullough's ideas, "Perhaps no more influential idea has been introduced into modern aesthetics than that of psychical distance."[7]

The psychical distance construct has been used as an intercultural theme by the arts in the study of creative detachment between East and West[8]. Despite such cameo appearances in other fields, the concept has been essentially "operationalised" by business with the marketing function acting as the chief curator.

The business origins of the "psychic distance" idiom can be traced back to research conducted by Beckerman (1956) and Linnemann (1966). As a fully formed concept Vahlne and Wiedersheim-Paul (1973) as cited by Nordstrom and Vahle (1992) described psychic distance as "factors preventing or disturbing the flow of information between potential or actual suppliers and customers." These factors are associated with country-based diversities and dissimilarities and can be grouped into four clear areas —

Political and Legal System – government stability and risk of instability, import tariffs, legal protection and taxation levels.

Although the concept was fully formed by the early 1970s, it was the study of Nordicmultinationals by Johanson and Vahlne (1977) which followed on from two earlier studies in 1975 and 1976, that is generally accepted as the concept's real genesis[9]. The studies concluded that a firm's international activities relate directly to psychic distance and that further international expansion progresses into markets with successively greater psychic distance.

In summary, companies export only to countries that they understand then build on their acquired experience to explore opportunities further afield. In other words, firms enter new markets where they are able to identify opportunities with low market uncertainty then enter markets at successively greater psychic distance[10]. As a consequence, contemporary literature on the internationalisation process cites psychic distance as a key variable and determinant for expansion into foreign markets.

The CAGE (Cultural, Administrative and Political, Geographical, and Economical) framework is commonly used to analyse psychic distance when investigating international expansion opportunities.

More recently, Gairola and Chong [11] incorporated psychic distance to simulate more realistic noise models in spatial games, leading to interesting results, including a manifestation of the psychic distance paradox.